Genesis and Gemini seek dismissal of SEC’s Earn Program lawsuit.

Gemini, a cryptocurrency exchange, and Genesis Global Capital, a bankrupt cryptocurrency lender, have filed a petition to dismiss the SEC action related to their joint venture product, Gemini Earn.

The SEC lawsuit accuses the firms of offering yield-bearing instruments to their customers and as such, offering securities for sale without the necessary registration with the relevant authority.

Gemini and Genesis argue in their court documents that Gemini Earn is not a security. They claim that the transactions effectively amounted to loans and ask the court to dismiss the complaint or to overturn the SEC’s requests for a disgorgement and permanent injunction.

Gemini says the SEC case is ill-conceived

Gemini criticized the SEC case as being “ill-conceived”. Due to Genesis’ bankruptcy filing following the SEC’s lawsuit in January, withdrawal rights for Earn users were restricted during mid-November 2022. Gemini submitted a claim to seek the recovery from Genesis of about $1.1 billion in assets for 232,000 Earn users.

Gemini and Genesis’ parent firm, Digital Currency Group (DCG), are negotiating through a mediator to establish a reorganization and settlement agreement. Gemini and other creditors are working together on an “amended plan of reorganization” to ensure the best outcome for Earn users.

Representing Gemini, Jack Baughman, founding partner of JFB Legal, criticized the SEC’s case, claiming that it made it more difficult to compensate Earn users and made it harder to recover assets from the Genesis bankruptcy.

Lending arrangements are not securities

Gemini’s Earn program allowed users to earn interest on their cryptocurrency deposits thanks to a financing partnership with Genesis Global Capital. The corporation emphasized that the contracts were not offered on a secondary market, supporting its claim that the lending arrangements are not securities.

The SEC’s crackdown on the cryptocurrency industry triggered a cascade of events that continues to affect the market. In the enforcement action against Genesis and Gemini, SEC Chair Gary Gensler emphasized the necessity of compliance with securities laws and the significance of safeguarding investors.

However, the bankruptcy of Genesis’s lending arm has further complicated the process of compensating Earn users, with Genesis’s parent company missing a $630 million payment. Gemini and Genesis have filed a request to dismiss the action in keeping with their prior promise to challenge the SEC’s claims.

Tyler Winklevoss, a Gemini co-founder, described the action as a “manufactured parking ticket” and voiced faith in their ability to defend themselves. The court’s ruling will greatly influence the future of the legal procedures and potential outcomes for Earn users on the motion to dismiss.

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